Silver

Despite failing to hold the $10.60 level last week, the silver technicals remain positive. The weekly MACD should see a cross over next week or the week after. This heavily used indicator should bring many momentum traders back into silver. $10.60 remains upside resistance but if we can break this decisively expect a brief pause at $11.39 but from there its straight to $13.66. The $10 range remains good support on the downside.

Silver in USD weekly (click on chart for larger view)



Gold

The $825 range remains strong resistance for gold. However, like silver, the MACD set up is extremely bullish. The cross over for gold likely to occur very soon. MACD cross overs from very low levels supported uptrending RSI and declining price is one of the most bullish technical set ups you can have. It is my view that gold will break resistance at $825 this week and head to $880 immediately. If the range breakout occurs we should see a retest of the all time highs of $1034 before Christmas.

Gold in USD weekly (click on chart for larger view)



Gold in Australian dollars

It is not widely publicised but gold is hitting record highs against the Euro, Swiss franc, South African Rand, Canadian dollar, British pound, NZ dollar and the Australian dollar. In fact year to date gold is up 29% in Australian dollar terms. Given stocks are down 40-50% over the same period gold is a stand out. Whilst a rise in the Australian dollar could limit the near term upside the technical picture is still very constructive. We have tested and failed at the $1300 resistance several times in recent weeks. With a good support now at $1226 I believe the next move up will break this resistance and move quickly to $1415.


Gold in AUD weekly (click on chart for larger view

By Paul Mladjenovic

It has been an incredible year loaded with surprises but I think that the next few years will surprise even more. Whenever I feel certain about something coming, I ‘m glad to put it in print. In 2004, I had successfully forecast many economic events such as the housing bubble popping and the credit crisis among other events. Current economic conditions and political outcomes have laid the groundwork for more events that we should be prepared for. All of these events combine to create a “Financial Vortex” that will hit us in the coming years.

First of all, be aware of what current conditions will help lay the groundwork for this financial vortex. They are:

America’s debt load. The U.S. government has now $12 trillion in debt. Consumers and businesses are drowning in debt. America’s gross domestic product (GDP) is about $13 trillion yet its total debt is over $44 trillion.
Derivatives. Derivatives are complicated, arcane and risky securities that now total about $500 trillion. That makes this market ten times greater than the dollar value of the world economy which is just under $50 trillion.
Unfunded Liabilities. The current future tally of the unfunded liabilities of Social Security, Medicare and Medicaid is nearly $99 trillion.
Growth of government. The expansion of the government’s involvement in the economy is (and will be) massive. Taxes, regulations, controls, spending, etc. at all levels of government (both domestic and international) will be problematic by an order of magnitude that the private sector will not be able to tolerate.
Think about it for a moment. The past few months have shown us what a few trillion in bad debt and derivatives can do to the market. The Dow is down several thousand points in the past few months and is down nearly 40% since hitting its all-time high in October 2007 of 14,164.53. What will happen to the stock market when many multi-trillions of debt, derivatives and unfunded liabilities start hitting us like a powerful vortex in the coming years? The economy is extraordinarily weak right now and it would not take much to see millions of hard-working folks get devastated. It is time to prepare. America needs to know what is coming. Some of these events are now unavoidable so being fore-warned and getting prepared is crucial.

Here are my forecasts for what I believe is coming during the next few years:

1. You will see an inflationary depression that will be evident by 2010.
Maybe I’ll be off a few months either way but an inflationary depression is almost guaranteed. Why? The latest batch of elected officials see government intervention as either a moral good or a necessary evil. The most likely policy initiatives that we will see in the coming months will be government controls, increased taxes and extraordinary “money” creation (inflating the money supply). In fact we have (and will) see trillions of new dollars will flood the economy in the coming months. This will probably cause the stock market and some economic indicators to rise and give the illusion of economic health during early 2009. This will cause many commentators to proclaim that we are coming out of the current recession. People will think that government intervention worked. Typically, government intervention only alleviates some of the symptoms in the short-term while postponing the problem(s) toward the long-term. Right now many commentators are calling the current economic environment “deflationary” but it is massive de-leveraging by huge financial entities that are selling off everything from stocks to commodities to accrue cash and stave off bankruptcy. As trillions of dollars flood into the economy, that condition will change. If they report the statistics properly, then we will see a contracting economy (measured by GDP) coupled with rising prices. A good example of this is Venezuela where that economy is struggling while their inflation rate is currently over 36% (as of October 2008). The government, in an attempt to revive consumption and job creation will increase the money supply by an order of magnitude never seen before in this country. Seeing the inflation rate soar to 20% and beyond during 2010 (or 2011) is a solid bet.

2. Unemployment in the private sector will soar into double-digits by 2010.
As the recession morphs into a depression and as the government grows partly as a “solution” to economic difficulties, the increased burdens of government (taxes, controls, spending, etc.) will grow to burdensome levels for both consumers and businesses. Government spending on unemployment benefits and “make work” projects will soar to address the large job losses in the private sector. Right now you should re-assess your job, your company and your industry to see if you are at risk.

3. More state and municipal governments will be federal bailout candidates.
I forecast this condition many months ago in my national seminars but recently this became headline news so it’s not such a great forecast new.. California and New York State are already seeking taxpayer money from the Federal government. However, we will see much more of this. During 1995-2008, many state and local governments over-extended themselves. Because they thought that good times (and housing booms) would last indefinitely, they took on more spending and more borrowing. Many of these jurisdictions will be forced into either spending cuts, higher taxes or both. Some will be forced into bankruptcy. Because of these events, there will be some areas that will experience social unrest due to difficult financial conditions.

4. Commodities will be in the next leg of their long-term bull market starting in 2009.
Commodities such as oil, grains, precious metals, etc. had a great upleg in early 2008 and then had a brutal correction during the second half. Although much of it is attributed to deflation and “demand destruction”, these conditions are short-lived. Why? Two basic reasons; shortages (supply destruction) and rising inflation. Since government policy makers will make every effort to avert an economic contraction, they will flood the economy with inflation and renewed government spending. Economic policy decision-makers at the federal level think that “increased consumption” is the key to economic growth because they are influenced by the Keynesian school of economics. The world hasn’t figured out yet that John Maynard Keynes’ policies are flawed and dangerous. The bottom line is that conditions are ripe for commodities to resume their bull market and reach new highs during 2009-2010. As an offshoot of this, you will also see conflicts across the globe tied to natural resources as countries with growing populations need more food, water, etc.

5. We will see oil hit $200 as Peak oil becomes obvious to all during 2009-2012.
Don’t be fooled by the recent drop in oil from $147 in the summer of 2008 to $50 during November 2008. The recent data from the world energy market indicates that oil depletion (“supply destruction”) is far more severe than the recent headlines blaring the misleading condition of “demand destruction”. The most severe energy crisis in history is in my mind an unavoidable certainty during the next few years. America needs to go full-bore toward energy independence since we will have no choice. This energy crisis will be very difficult to get through and will cause tremendous social and economic difficulty.

6. International conflicts over natural resources will hit the headlines during 2009-12.
As governments across the globe seek to address the wants needs of their growing populations, there will be aggressive competition for the world’s limited resources. Natural resources will be seen as strategic as well as economic. National and economic security for America will be a vital concern.

Now you can see why I refer to it as a “Financial Vortex”. We pray for our country and we hope to get through this with a minimum of suffering but it behooves all of us to be ready. It is better to prepare for problems that may occur than to ignore reality and be set up for pain. Although the Financial Vortex conference will be held in New Jersey on December 6, 2008, let me share with you a few of the strategies that will be covered that day:

Buy gold and silver bullion. Yes…there have been physical shortages reported but that shouldn’t stop you from getting some for your portfolio. Precious metals retain their value during a period of economic uncertainty and rising inflation.
Keep a cash cushion. Have money set aside in a safe venue such as a treasury money market fund. This is not for long-term purposes since inflation will be a major issue; it is there for an emergency fund for day-to-day needs.
Shift your retirement portfolio into stocks and ETFs tied to “human need” such as food, water, energy, etc. These companies and sect ors will have a better time surviving the coming years than other sectors that are problematic such as real estate, financials and cyclicals (such as autos and other “big ticket” items). I believe that much of the conventional stock market will get slammed.
The Financial Vortex is coming. Millions will be blindsided but those that prepare will survive and even thrive. I am doing my conference primarily because I want people to be safe and do those things that will ensure greater financial security. It is also why experts such as David Morgan, Jay Taylor and Roger Wiegand will join me that day so that people can get specifics on what to expect and how to prosper. The bottom line is that it is better to be safe than sorry.

By Ambrose Evans-Pritchard

Citigroup says gold could rise above $2,000 next year as world unravels
Gold is poised for a dramatic surge and could blast through $2,000 an ounce by the end of next year as central banks flood the world's monetary system with liquidity, according to an internal client note from the US bank Citigroup.

The bank said the damage caused by the financial excesses of the last quarter century was forcing the world's authorities to take steps that had never been tried before.

This gamble was likely to end in one of two extreme ways: with either a resurgence of inflation; or a downward spiral into depression, civil disorder, and possibly wars. Both outcomes will cause a rush for gold.

"They are throwing the kitchen sink at this," said Tom Fitzpatrick, the bank's chief technical strategist.

"The world is not going back to normal after the magnitude of what they have done. When the dust settles this will either work, and the money they have pushed into the system will feed though into an inflation shock.

"Or it will not work because too much damage has already been done, and we will see continued financial deterioration, causing further economic deterioration, with the risk of a feedback loop. We don't think this is the more likely outcome, but as each week and month passes, there is a growing danger of vicious circle as confidence erodes," he said.

"This will lead to political instability. We are already seeing countries on the periphery of Europe under severe stress. Some leaders are now at record levels of unpopularity. There is a risk of domestic unrest, starting with strikes because people are feeling disenfranchised."

"What happens if there is a meltdown in a country like Pakistan, which is a nuclear power. People react when they have their backs to the wall. We're already seeing doubts emerge about the sovereign debts of developed AAA-rated countries, which is not something you can ignore," he said.

Gold traders are playing close attention to reports from Beijing that the China is thinking of boosting its gold reserves from 600 tonnes to nearer 4,000 tonnes to diversify away from paper currencies. "If true, this is a very material change," he said.

Mr Fitzpatrick said Britain had made a mistake selling off half its gold at the bottom of the market between 1999 to 2002. "People have started to question the value of government debt," he said.

Citigroup said the blast-off was likely to occur within two years, and possibly as soon as 2009. Gold was trading yesterday at $812 an ounce. It is well off its all-time peak of $1,030 in February but has held up much better than other commodities over the last few months – reverting to is historical role as a safe-haven store of value and a de facto currency.

Gold has tripled in value over the last seven years, vastly outperforming Wall Street and European bourses.

"The next bubble is Gold. I expect there maybe a panic into Gold and a scramble into physical gold as citizens, who are not dumb, realize that the Central Banks are engaged in a contest to print the most money, to keep the cost labor low, the employment high and to erase the Nationial debts. This will destroy the currencies, confidence and create instability".

Marc Faber November 25th 2008.

Got gold?

by Dr Jim Willie

On October 29, the US Federal Reserve cut by 50 basis points the official Fed Funds rate down to 1.0% flat. Do not expect the USFed to be done cutting rates. One week later, the entire globe of beleaguered central banks also cut their official interest rates in a parade of ignominy. They coordinated rate cuts on October 8, and again followed the USFed in early November. The important Euro CB cut by 50 basis points to the 3.25% level, surely in reluctant fashion given their firm defiant stance. The most desperate CBs are clearly England and Switzerland among the majors, and Australia and New Zealand in the second tier. The Bank of England (BOE) cut by 150 basis points unexpectedly, now at a 3.0% low level. The Swiss National Bank cut by 50 bpts with the pack, but on November 20 surprised all by cutting another full 100 bpts down to the ultra-low 0.5% level. The Reserve Bank of Australia cut by 100 bpts in October and plans to cut again this month. The Reserve Bank of New Zealand cut by 100 bpts in October and also plans further cuts. The Bank of Canada cut by 25 bpts in October and plans another 25 bpt cut in December. The Riksbank of Sweden cut by 50 bpts to 3.75% in October and plans another 25 bpt cut in December or soon afterwards. With global monetary inflation raging, and official interest rates converging to zero, the global central bankers must hang their heads in shame. THIS IS THE MOST VISIBLE, OBVIOUS, PREVALENT SIGNAL OF THEIR FAILURE.

The contained messages are four-fold:

ABSOLUTE CONTAGION: the global economy is suffering from broadly felt toxic shock due to US bonds, a process that has a few more quarters of severe crisis pathogenesis
POLICY EXTORTION: the major and secondary CB heads want to cut so that the US$ does not fall, coerced with a monetary gun at their heads
INFLATION EXPLOSION: global monetary growth has gone ballistic, no longer a priority to control, with all talk about limiting price inflation relegated to mumbling in the corner
ENDLESS RESCUES & BAILOUTS: the government sponsored bailouts are nowhere near finished, sure to be an endless parade of patchwork and stimulus with eventual climax of mortgage aid.
Just think of it. The USGovt, after a coup d’etat pulled off by Wall Street and fraudulent climax diversion of TARP funds, has yet to address the mortgage problem at all. Mortgage aid in meaningful and necessary terms is actively avoided, since it must come with a price tag up to $2000 billion in the United States alone. The nationalization of the US banking, if not financial system, is highly likely to be followed by an eventual virtual nationalization of the entire mortgage system. Such a decision and desperate socialist action will be the death knell for the USDollar, if it survives to the point when such a program is enacted.

The unbridled monetary inflation is a powerful bull market signal for gold, once asset prices stabilize. Monetary explosion always pushes gold upward in price, but this time much money is directed into a multi-channeled black hole. Today, yet another program was announced, finally to enable more lending capital to banks. They have been starved to date, drained in order to supply the corrupt Wall Street conmen in charge. The coordinated interest rate cuts reveal the strong impact of Competing Currency Devaluation. Foreigners wish to avoid further aggravation to their economies from even lower domestic currency exchange rates. They inflict higher prices upon their economies. Later, foreign governments will order their reserves and sovereign wealth funds to dump USTBonds in order to bolster their domestic currencies, the great counter-attack. The USEconomy has a worse problem to fix by an order of magnitude. My view is that the powerful US ailments are not fixable, since the financial engineering is too deeply rooted and the manufacturing industrial base has been removed in several stages over a 25-year period. Besides, the credit derivatives loom like a series of hidden bombs whose fuses intersect in the dark.

THE FRANCHISE OF CENTRAL BANKING HAS FAILED, AND GRAND RATE CUTS CONFIRM THIS NOTION EMPHATICALLY!!! THE COLLECTION OF CONCLUSIONS ADDS UP TO ONE POWERFUL FORECAST: GOLD & SILVER PRICES WILL RISE 10-FOLD IN THE NEXT FEW YEARS. SOON THE CLUTCH WILL BE RELEASED AND THE 10000 RPMS ENGAGE THE ECONOMIC TRANSMISSION TO PRODUCE PRICE SKIDMARKS. Ignore for now the paper price heavy-handed influence, which in my view will suddenly disappear in a volcano of controversy and tumult! The US paper system has falsified the entire global pricing structure. Instead of price discovery, we have been subjected to price controls and tyranny. Next comes the counter-attack.

Lost faith in USFed has finally come. Chairman Bernanke has learned the hard way that usage of the printing press is not the boasted solution. He is sending good money after bad, redeeming criminal fraud, endorsing checks for a broken system, and creating numerous delivery channels into a vast black hole. The US Federal Reserve has accomplished a bizarre feat. They have made short-term lending virtually free, but offer a yield over 3% on long-term bonds. So US banks are deeply engaged in a queer carry trade. US banks borrow short and lend to the USGovt long, and thus exploit the steep USTreasury yield curve. The US banks are trying to liquefy from this perverse mechanism, using incredibly large volumes of money. In the process, the USFed balance sheet is testing whether it can grow a tree to the sky. The USGovt has contributed to the ugly mountain of rancid paper with bad precedent after bad precedent, from poorly written deals. No private investor in right mind would step forward to help an ailing industrial or financial firm on the absurd blockheaded terms established by the USGovt. A record setting 25% of high-powered money, as in bank assets, that the USFed has provided, actually sit idle as excess reserves. Hence, money velocity has sharply dropped, typical of a recession. Failure has many symptoms. The USEconomy aggregates are falling off a cliff in unison.

Europe has entered a recession, but the US has entered disintegration, while England is close behind with a galloping leap off the Dover Cliffs. Kenneth Clark is a highly respected former conservative Chancellor of the Exchequer (finance minister) from 1993 to 1997 in England. He delivered an urgent warning for a “catastrophic crisis [that will be] far worse than anything that has occurred in my lifetime” for Great Britain. Clarke even slammed Gordon Brown as having received undue credit for his role in attempting to shore up the global economy. He warned policymakers should beware of a “full-blown depression will have on public finances” for its effect. A major error has been committed by both the US & UK. Neither nation has succeeded in passing on lower interest rates to home loans, and repayment plans are not happening in volume. The elite in both the US & UK are protecting their bankers, but killing the system in the process. Housing prices are careening downward, while job losses mount in large numbers, in both nations. The death of the AngloSphere is nigh, as status of debtor nations comes soon with all its penalties. A simple move to cut rates does nothing to address insolvency of both banks and households. This basic truism is totally lost on clownish inept US & UK economists and bankers. They both built an economy atop a housing bubble, blessed it, and encouraged the debt orgy process, only to see the entire system melt down. This was fully forecasted during the last two years by the Hat Trick Letter.

A VERY QUEER ANOMALY

We are working toward a nasty climax of historic proportions. Notice that the USTreasury Bill has an artificially high price, with staggering huge volume, which is backwards. This condition defies Mother Economic Nature. Notice that gold has an artificially low price on the paper contracts, with staggering huge demand for physical metal, which is also backwards. This condition defies Mother Economic Nature.

The USTreasurys, given the staggering high volume, should be valued lower. The gold bullion, with its staggering high demand, should be valued higher. Something must break, and break soon. Regard these two anomalies as temporary distress symptoms of ass-backward price mechanisms. The natural tendencies of man, full of human emotions like vengeance and retribution, will soon be unleashed to correct the PHONY HIGH USTBILL PRICE AND PHONY LOW GOLD PRICE. All kinds of key evidence points to a COMEX default in December, discussed in the November Gold & Currency Report. The keys are in the Open Interest, which for gold is collapsing. But the December OI is holding up at relatively high levels. The interpretation from Mr Market, who is a distant cousin of Mother Economic Nature, is “The paper gold market is flawed, and people want no part of it. What physical gold becomes available is being grabbed immediately.”

Further hints are offered by the Chinese, who announced a stimulus plan worth over $500 billion. They will use their USTBonds before they are trashed. The next phase is feeding off the USTreasury much like a dead elephant. However, the signature event must come first. THE COMEX GOLD MUST BE VANQUISHED. This is the Achilles Heel to the USDollar.

ATTACK OF COMEX GOLD & SILVER
Powerful foreign entities are preparing a massive major assault on the US financial corruption, at key spots. All signs seem to point to the gold futures contracts traded at the COMEX and NYMEX, whose prices are routinely suppressed by a high volume of uneconomic short contracts by two to four banks. The COMEX is a division of the New York Mercantile Exchange. A highly leveraged sequence is soon to be unleashed, one that should bring back thoughts of asymmetric attack. Think small cost of a weapon, heavy damage to costly equipment. Something big comes to the gold market, with big angry players! If successful, severe damage will be done to the USDollar. Their goal is to kill the COMEX gold market, the key location for gold price suppression. Major Russian, Chinese, Arab, and European bankers and billionaires are angry beyond words. The giant portion of gold vaulted resides in Central Europe. A plan is in place. The key here and now is COMEX gold futures contracts, where many big players are demanding delivery for their December contracts. North American investment houses have also targeting them for delivery demands. With newly energized Russia & China building their gold treasures, with Arabs turning from distrusted Western paper and more toward gold & silver, look for the new players to offer support to the primary thrust attacks. If successful, it will be a defining moment in US financial history. The first delivery notice for the December gold contract is given on November 28.

Recall that Russians and Arabs each have severe damage done to the crude oil price and petro revenues. The futures contract games conducted by US price systems and Wall Street tactics used against hedge funds are largely responsible. Russians and Arabs are angry. Their financial markets are in turmoil, their economies are disrupted, their property markets are in disarray. Furthermore, Russians and Arabs own a large amount of acquired gold, whose value is also pushed down by corrupt US paper mechanisms. The Persian Gulf lusts to put in place a gold trading center of world repute. A brutal powerful trap has been set, to be executed upon the paper engineers without mercy. If you have noticed the facial expression on some Wall Street heads, like Paulson, change in the last few weeks, this is one reason why. They have no shame in confiscation of Congressional funds. But they dread presiding over a failed pricing system for gold, and dread the prospect of being unmasked, not to mention bankrupted. Keep the focus on the JPMorgan garbage can, where the illegal futures contracts are stored, the very same contracts that are never marked to market on their balance sheet. A COMEX blowup reveals their grotesque distortion of market forces, underpinned by gold and USTreasurys. More details are provided in the November Hat Trick Letter report, like the movement by the Chinese and Iranians to vastly increase their gold reserves.

Veteran warhorse Max Keiser, has a video worth watching. See his video (CLICK HERE). He discusses the upcoming COMEX default for the December gold futures contract. He believes that in its wake, the gold price will rise suddenly to $2000 per ounce, perhaps in a single day. The main impetus in his view for the breakdown is pressure exerted by Russia, in his view. He describes their motive. Russia is very angry over the oil price, down 60% from its peak, driven largely by liquidations from Wall Street targeting of hedge funds. Russia regards the paper game to be out of control. Russia has suffered from both reduced energy revenues from export sales, and notable currency decline in their ruble exchange rate. Financial markets, banks, and corporations have suffered in Russia as a result, prompting a severe reaction by Putin and Medvedev. These are not guys known to take ambushes and sucker punches well without a response.

AWAKENED GOLD PRICE

The USDollar DX index has topped. Conversely, the gold price has bottomed. Each has experienced a clear vivid pronounced reversal off the extreme. Signs point to December as being a battleground month. The moving averages have begun to reverse, a more stable signal. A MACD crossover is near, which would give a billboard notice to technical traders. Beware that this is the phony paper gold price. Actual large physical gold transactions are conducted at prices in excess of $1000 per ounce. The undue influence of paper price discovery is soon to end. As the Gladiator said in the 1999 movie by the same name, to the phony emperor who usurped power, “The time will soon come to an end for you to honor yourself.” Expect severe discontinuity in the gold price in the next few months, maybe sooner. If Keiser and others are correct, and the assault on the COMEX gold succeeds to liberate its price, a gap up is assured, a big gap up, like a few hundred dollars per ounce. Now is the time to hold firm your gold and silver metal. Sell the children, but do not sell the precious metal.

by Kurt Kasun

John Maynard Keynes was the first to call gold a "barbarous relic", giving governments the right to intervene, print and distort to their hearts' content. But the day of reckoning is here. Keynesian economics has resulted in the current mess, and Austrian economics will cure it, but not overnight. Only after the world's paper currencies have reached rock bottom and nations are forced back to metals-backed currencies will the adoption of sustainable economic policies occur. We are now caught in a deflationary cycle, and the correct trade was - and is - to short the indices and buy gold. The stock market has violated every support line, and there are only plunges ahead. In addition, negative feedback loops between the financial markets and the real economy are going to wreak havoc. Deflation and the strengthening US dollar are not positive developments; declining consumer prices are only good if the decline is because of expanding supply. As for the dollar, its strength is hurting the US government, which is sure to concoct a way of squirming out of its debt obligations. It will not default, but will inflate its way out, reducing the price of its current obligations. This is why it is important to be long gold and short the market. Gold is holding up well in the current environment of asset deflation, but just wait until inflation takes hold; gold will rocket to the upside. Believe it or not, there is still too much optimism out there, an unhealthy condition in the current environment. Investment strategies that exploit this natural human desire when the evidence is for pessimism is overwhelming are required today. Optimism propels society forward and moves individuals ahead in 'normal' times. The period we are entering will be far from normal.

MOSCOW, November 24 (RIA Novosti) - A leading Russian political analyst has said the economic turmoil in the United States has confirmed his long-held view that the country is heading for collapse, and will divide into separate parts.

Professor Igor Panarin said in an interview with the respected daily Izvestia published on Monday: "The dollar is not secured by anything. The country's foreign debt has grown like an avalanche, even though in the early 1980s there was no debt. By 1998, when I first made my prediction, it had exceeded $2 trillion. Now it is more than 11 trillion. This is a pyramid that can only collapse."

The paper said Panarin's dire predictions for the U.S. economy, initially made at an international conference in Australia 10 years ago at a time when the economy appeared strong, have been given more credence by this year's events.

When asked when the U.S. economy would collapse, Panarin said: "It is already collapsing. Due to the financial crisis, three of the largest and oldest five banks on Wall Street have already ceased to exist, and two are barely surviving. Their losses are the biggest in history. Now what we will see is a change in the regulatory system on a global financial scale: America will no longer be the world's financial regulator."

When asked who would replace the U.S. in regulating world markets, he said: "Two countries could assume this role: China, with its vast reserves, and Russia, which could play the role of a regulator in Eurasia."

Asked why he expected the U.S. to break up into separate parts, he said: "A whole range of reasons. Firstly, the financial problems in the U.S. will get worse. Millions of citizens there have lost their savings. Prices and unemployment are on the rise. General Motors and Ford are on the verge of collapse, and this means that whole cities will be left without work. Governors are already insistently demanding money from the federal center. Dissatisfaction is growing, and at the moment it is only being held back by the elections and the hope that Obama can work miracles. But by spring, it will be clear that there are no miracles."

He also cited the "vulnerable political setup", "lack of unified national laws", and "divisions among the elite, which have become clear in these crisis conditions."

He predicted that the U.S. will break up into six parts - the Pacific coast, with its growing Chinese population; the South, with its Hispanics; Texas, where independence movements are on the rise; the Atlantic coast, with its distinct and separate mentality; five of the poorer central states with their large Native American populations; and the northern states, where the influence from Canada is strong.

He even suggested that "we could claim Alaska - it was only granted on lease, after all."

On the fate of the U.S. dollar, he said: "In 2006 a secret agreement was reached between Canada, Mexico and the U.S. on a common Amero currency as a new monetary unit. This could signal preparations to replace the dollar. The one-hundred dollar bills that have flooded the world could be simply frozen. Under the pretext, let's say, that terrorists are forging them and they need to be checked."

When asked how Russia should react to his vision of the future, Panarin said: "Develop the ruble as a regional currency. Create a fully functioning oil exchange, trading in rubles... We must break the strings tying us to the financial Titanic, which in my view will soon sink."

Panarin, 60, is a professor at the Diplomatic Academy of the Russian Ministry of Foreign Affairs, and has authored several books on information warfare.

by Ludwig von Mises

Why have a monetary system based on gold? Because, as conditions are today and for the time that can be foreseen today, the gold standard alone makes the determination of money's purchasing power independent of the ambitions and machinations of governments, of dictators, of political parties, and of pressure groups. The gold standard alone is what the nineteenth-century freedom-loving leaders (who championed representative government, civil liberties, and prosperity for all) called "sound money."

The eminence and usefulness of the gold standard consists in the fact that it makes the supply of money depend on the profitability of mining gold, and thus checks large-scale inflationary ventures on the part of governments.

The gold standard did not fail. Governments deliberately sabotaged it, and still go on sabotaging it. But no government is powerful enough to destroy the gold standard so long as the market economy is not entirely suppressed by the establishment of socialism in every part of the world.

Governments believe that it is the gold standard's fault alone that their inflationary schemes not only fail to produce the expected benefits, but unavoidably bring about conditions that (also in the eyes of the rulers themselves and most of the people) are considered as much worse than the alleged or real evils they were designed to eliminate. Except for the gold standard, governments are told by pseudo-economists that they could make everybody perfectly prosperous. Let us test the three doctrines advanced for the support of this fable of government omnipotence.

1. The Fiction of Government Omnipotence

"The state is God," said Ferdinand Lassalle, the founder of the German socialist movement. As such, the state has the power to "create" unlimited quantities of money and thus to make everybody happy. Intrepid and clear-headed people branded such a policy of "creating" money as inflation. The official terminology calls it nowadays "deficit spending."

But whatever the name used in dealing with this phenomenon may be, its meaning is obvious. The government increases the quantity of money in circulation. Then a greater quantity of money "chases" (as a rather silly but popular way of talking about these problems says) a quantity of goods and services that has not been increased. The government's action did not add anything to the available amount of useful things and services. It merely made the prices paid for them soar.

If the government wishes to raise the income of some people, for example, government employees, it has to confiscate by taxation a part of some other people's incomes, and then distribute the amount collected to its employees or favored groups. Then the taxpayers are forced to restrict their spending, while the recipients of the higher salaries or benefits are increasing their spending to the same amount. There does not result a conspicuous change in the purchasing power of the monetary unit.

But if the government provides the money it wants for the payment of higher salaries by printing it or the granting of additional credits, the new money in the hands of these beneficiaries constitutes on the market an additional demand for the not-increased quantity of goods and services offered for sale. The unavoidable result is a general tendency of prices to rise.

Any attempts the governments and their propaganda offices make to conceal this concatenation of events are in vain. Deficit spending means increasing the quantity of money in circulation. That the official terminology avoids calling it inflation is of no avail whatever.

The government and its chiefs do not have the powers of the mythical Santa Claus. They cannot spend except by taking out of the pockets of some people for the benefit of others.

2. The "Cheap-Money" Fallacy

Interest is the difference in the valuation of present goods and future goods; it is the discount in the valuation of future goods as against that of present goods. Interest cannot be "abolished" as long as people prefer an apple available today to an apple available only in a year, in ten years, or in a hundred years.

The height of the originary rate of interest,[1] which is the main component of the market rate of interest as determined on the loan market, reflects the difference in the people's valuation of present and future satisfaction of needs. The disappearance of interest, that is, an interest rate of zero, would mean that people do not care a whit about satisfying any of their present wants and are exclusively intent upon satisfying their future wants, their wants of the later years, decades, and centuries to come. People would only save and invest and would not be consuming.

On the other hand, if people were to stop saving, that is, making any provision for the future, be it even the future of the tomorrow, and would not save at all and consume all capital goods accumulated by previous generations, the rate of interest would rise beyond any limits.

It is thus obvious that the height of the market rate of interest ultimately does not depend on the whims, fancies, and the pecuniary interests of the personnel operating the government apparatus of coercion and compulsion, the much-referred-to "public sector" of the economy. But the government has the power to push the Federal Reserve System, and the banks subject to it, into a policy of cheap money. Then the banks are expanding credit. Underbidding the rate of interest as established on the not-manipulated loan market, they offer additional credit created out of nothing. "The gold standard alone makes the determination of money's purchasing power independent of the ambitions and machinations of governments."

Thus they are inescapably falsifying the businessmen's estimation of market conditions. Although the supply of capital goods (that can only be increased by additional saving) remained unchanged, the illusion of a richer supply of capital is conjured up. Business is induced to embark upon projects which a sober calculation, not misled by the cheap-money ventures, would have disclosed as mal-investments (over-investment in capital). The additional quantities of credit inundating the market make prices and wages soar. An artificial boom, a boom built entirely upon the illusions of ample and easy money, develops. But such a boom cannot last. Sooner or later it must become clear that, under the illusions created by the credit expansion, business has embarked upon projects for the execution of which the real savings are not rich enough. When this mal-investment becomes visible, the boom collapses.


The depression that follows is the process of liquidating the errors committed in the excesses of the artificial boom; it is the return to calm reasoning and a reasonable conduct of affairs within the limits of the available supply of capital goods. It is a painful process, but it is a process of restoration of business health.

Credit expansion is not a nostrum to make people happy. The boom it engenders must inevitably lead to a debacle and unhappiness.

If it were really possible to substitute credit expansion (cheap money) for the accumulation of capital goods by saving, there would not be any poverty in the world. The economically backward nations would not have to complain about the insufficiency of their capital equipment. All they would have to do for the improvement of their conditions would be to expand money and credit more and more. No "foreign aid" schemes would have emerged. But in granting foreign aid to the backward nations, the American government implicitly acknowledges that credit expansion is no real substitute for genuine capital accumulation through saving.

3. The Failure of Minimum Wage Legislation and of Union Coercion

The height of wage rates is determined by the consumers' appraisal of the value the worker's labor adds to the value of the article available for sale. As the immense majority of the consumers are themselves earners of wages and salaries, this means that the determination of the compensation for work and services rendered is made by the same kind of people who are receiving these wages and salaries. The fat earnings of the movie star and the boxing champion are provided by the welders, street sweepers, and charwomen who attend the performances and matches.

An entrepreneur who would try to pay a hired man less than the amount this man's work adds to the value of the product would be priced out of the labor market by the competition of other entrepreneurs eager to earn money. On the other hand, no entrepreneur can pay more to his helpers than the amount the consumers are prepared to refund to him in buying the product. If he were to pay higher wages, he would suffer losses and would be ejected from the ranks of the businessmen.

Governments decreeing minimum wage laws above the level of the market rates restrict the number of hands that can find jobs. Such governments are producing unemployment of a part of the labor force. The same is true for what is euphemistically called "collective bargaining."

The only difference between the two methods concerns the apparatus enforcing the minimum wage. The government enforces its orders in resorting to policemen and prison guards. The unions "picket." They and their members and officials have acquired the power and the right to commit wrongs to person and property, to deprive individuals of the means of earning a livelihood, and to commit many other acts which no one can do with impunity.[2] Nobody is today in a position to disobey an order issued by a union. To the employers no other choice is left than either to surrender to the dictates of the unions or to go out of business.

But governments and unions are impotent against economic law. Violence can prevent the employers from hiring help at potential market rates, but it cannot force them to employ all those who are anxious to get jobs. The result of the governments' and the unions' meddling with the height of wage rates cannot be anything else than an incessant increase in the number of unemployed.

"The result of the governments' and the unions' meddling with the height of wage rates cannot be anything else than an incessant increase in the number of unemployed."

It is precisely to prevent this outcome that the government-manipulated banking systems of all Western nations are resorting to inflation. Increasing the quantity of money in circulation and thereby lowering the purchasing power of the monetary unit, they are cutting down the oversized payrolls to a height consonant with the state of the market. This is today called Keynesian full-employment policy. It is in fact a method to perpetuate by continued inflation the futile attempts of governments and labor unions to meddle with the conditions of the labor market. As soon as the progress of inflation has adjusted wage rates so far as to avoid a spread of unemployment, government and unions resume with renewed zeal their ventures to raise wage rates above the level at which every job-seeker can find a job.

The experience of this age of the New Deal, the Fair Deal, the New Frontier, and the Great Society confirms the fundamental thesis of the true British lovers of political liberty in the nineteenth century, namely, that there is but one means to improve the material conditions of all of the wage earners, viz., to increase the per-head quota of real capital invested. This result can only be brought about by additional saving and capital accumulation, never by government decrees, labor-union violence and intimidation, and inflation. The foes of the gold standard are wrong also in this regard.

4. The Inescapable Consequence, namely, the United States Government Gold Holdings Will Shrink

In many parts of the earth an increasing number of people realize that the United States and most of the other nations are firmly committed to a policy of progressing inflation. They have learned enough from the experience of the recent decades to conclude that on account of these inflationary policies an ounce of gold will one day become more expensive in terms both of the currency of the United States and of their own country. They are alarmed and would like to avoid being victimized by this outcome.

Americans were once forbidden to own gold coins and gold ingots (from 1933 to 1976). Their attempts to protect their financial assets consisted in the methods that the Germans in the most spectacular inflation that history knows called "Flucht in die Sachwerte" (flight into real values). They are investing in common stocks and real estate, and prefer to have debts payable in legal tender money rather than holding claims payable in it.

Even in the countries in which people are free to buy gold there are not yet (1965) conspicuous purchases of gold on the part of financially potent individuals and institutions. Up to the moment at which French agencies began to buy gold, the buyers of gold were mostly people with modest incomes anxious to keep a few gold coins as a reserve for rainy days. It was the purchases via the London gold market on the part of such people that reduced the gold holdings of the United States.

There is only one method available to prevent a further reduction of the American gold reserve, namely, radical abandonment of deficit spending as well as of any kind of "easy-money" policy.

A speech given by Ferdinand Lips
at the University of St. Gallen on 24 June 2004 as part of
the International Finance & Security lecture series


I would like to thank the organizers, Mr. Graf and Mr. Brunner, for inviting me here today. It says a lot that you have chosen such a contentious topic as gold. That shows courage. Indeed, until recently it was almost taboo to mention the word gold. Anyone who did so risked being labeled eccentric. But you were quite right in choosing this topic. You will soon see the extent to which gold has played a central and positive role in human history since the dawn of civilization.

I will provide evidence that without a gold-backed currency we are destined to face crises and military conflicts throughout the world. The best proof of this is provided by the events of the 20th century and the dawning 21st century.

I will also prove, or at least assert, that without a new gold standard the world will descend into a new dark age. I don’t know what the significance is, but the calendar of the ancient Mayan civilization ends in the year 2012. In my estimation, the current financial system, or non-system as I call it, will no longer exist by that time. As you know, it is based on deception and a mammoth debt burden that can barely be serviced anymore. In all likelihood, this mountain of debt will overwhelm the world someday.

I also want to give you hope, however, by describing to you how once upon a time there were better financial systems than the one we have today. My speech is also an appeal to you. I appeal to you young people to think of gold as money. Engage in monetary archeology. Try to devote some thought to the gold standard. It is up to you to save the world. No one will do it for you.

My speech will last 45 minutes. Afterwards, you will have to opportunity to ask questions. For those of you who would like to buy my latest book Die Gold-Verschwörung1) (Gold Wars), I will be happy to write a personal inscription.

Introduction:
today’s situation stems from abandonment of the gold standard
All of the bad things happening in the world today can be traced back to two specific events. They have given rise to the most troubling issues of the 20th century and now of the 21st century, including political dilemmas, wars, monetary crises, economic emergencies, widespread poverty, racism, the Holocaust, mass migration and terrorism. All of these things are overwhelmingly attributable to these two developments.

The first event is the abandonment of the gold standard at the beginning of World War One in 1914, and the second event is the establishment of the Federal Reserve System in the USA in 1913. World history demonstrates that there is a close relationship between monetary systems and war and peace.

And economic history shows that financial markets only function smoothly under a gold standard.

It is also evident that there is a close relationship between monetary systems and ethics and morality.

Unfortunately, it is not widely known that the 19th century was a period of prosperity and economic growth without inflation.

It seems like a fairytale when we discover that in those days the world’s major currencies remained stable over a long period. The French franc, for example, remained solid for 100 years. It was the age of the gold standard.

The lifespan of currencies
French franc 1814 – ... years
Dutch guilder 1816 – 1914 98 years
Pound sterling 1821 – 1914 93 years
Swiss franc 1850 – 1936 86 years
Belgian franc 1832 – 1914 82 years
Swedish krona 1873 – 1931 58 years
German mark 1875 – 1914 39 years
Italian lira 1883 – 1914 31 years

(Source: Pick’s Currency Yearbook 1977 – 1979)

How the gold standard worked
The basic rule of the gold standard was a fixed price for gold, i.e. each currency was convertible into gold at a specified rate. The currencies were backed by gold and redeemable in gold on demand. A nation’s monetary reserves consisted of only gold. On an international level, importing and exporting gold was unrestricted. All balance of payments deficits were settled in gold. (Balance of payments: the sum of all transactions between the domestic economy and the rest of the world.) Gold thus had a disciplining influence on a national economy.

It limited public spending. It provided citizens a currency that maintained its value and was internationally recognized. In such a system, if a balance of payments deficit develops because domestic prices go up, gold automatically flows out of the country. This leaves less gold available for internal money circulation, and prices will thus come under control or decline. Exports become competitive again, and the balance of payments reverses. If, on the other hand, a country has a balance of payments surplus, gold will flow in and allow the economy to expand. Upward revaluations or devaluations were unthinkable. The system maintained it stability automatically. This is one reason why politicians do not like gold. Gold forces them to balance their budget.

Stable currencies through the ages
History offers many examples of monarchs and kings who exercised great discipline in creating money. Ancient Greece, where the first gold coins were minted, provides one such example. Due to its gold content, the drachma in effect became the global currency of the civilized world at the time. During this period, the Greek cities thrived. And economic trade flourished.
The most impressive example of a nation with healthy money was Byzantium. In keeping with the ancient tradition of stable money in Greece, Emperor Constantine decreed the creation of a new coin named the solidus. For over 800 years, the solidus served as a global currency, circulating from China to the British Isles and from the Baltic Sea to Ethiopia.

Byzantine laws regarding monetary matters were very strict. Before someone was accepted into the bankers’ guild, the candidate needed sponsors. These people had to provide a character reference. The authorities wanted to be certain that the candidate would never counterfeit money. Anyone who violated these rules had their hand cut off.
It is an amazing historical fact that the Byzantine Empire flourished as the center of global trade for 800 years. During this period, there was not a single devaluation or any amassing of debts. Neither in antiquity nor in modern times has anyone else set such an example. Through its money, Byzantium controlled both the civilized and uncivilized world at the time. This outstanding phenomenon came to an end when Emperor Alexius Comnenus, who had high gambling debts, was forced to devalue. The Turks marched in 200 years later, and the splendor was over.

Another outstanding example of the success of standardized gold coins was the gold dinar of the Arabian Empire. At its peak, this empire extended from Bagdad to Barcelona.
The rise of the Italian city-states like Florence, Siena, Venice and Genoa was only made possible thanks to a new gold currency, the Florentine fiorino d’oro.
A stable, reliable gold currency spurred an upswing in trade and promoted prosperity in the Italian city-states and broad areas of Western Europe.
Gold as money formed the economic basis of the Renaissance. Cultures thrive only when prosperity prevails, not when people are poverty stricken. The power and the natural reliability of gold, in turn, brought mankind to a higher level of civilization.

In their great wisdom, the founding fathers of the USA stated in the American constitution that only gold and silver should be considered legal tender. The concept of paper money and a central bank were a horror for them. Today, all of this is ignored and viewed as anachronistic.

The 19th century gold standard, the highest monetary achievement of the civilized world
The gold standard was neither conceived at a monetary conference nor the brainchild of some genius. It was the result of centuries of experience. Great Britain was the architect. At the height of the gold standard at the beginning of the 20th century, there were about 50 countries, all of them leading industrialized nations, which participated in the gold standard. It was one big clearance community, and it worked.

In his book Währungen am Scheideweg(3) (Managed Money at the Crossroads – The European Experience), Professor Melchior Palyi wrote in 1960:
“For the first time since Rome’s prime did the civilized world succeed in creating a monetary unit. The commercial and financial integration of the world was achieved without the help of a military empire or a dreamy utopia. In theory and in reality, this monetary unit was accepted and recognized as the only rational currency system. Due to the automatic mechanism and the discipline to which the monetary institutions were tied, fluctuations in the exchange rates were very limited if not altogether impossible. This was the incalculable advantage of a gold currency.

Capital could be used for short-term as well as long-term transactions. Trade and industry were able to plan ahead. Especially the automatic mechanism and the rules of decent behavior in monetary affairs observed at the time liberated the value of money from the impact of governments’ whims. They substantially stabilized it on a worldwide basis. Despite all assurances by the monetary reformers, no reasonably equivalent replacement has been found in the meantime.”

Economist Ludwig von Mises wrote in his book Human Action4):

“The gold standard was the world standard of the age of capitalism, increasing welfare, liberty and democracy, both political and economic. In the eyes of the free traders its main eminence was precisely the fact that it was an international standard as required by international trade and the transactions of the international money and capital market. It was the medium of exchange by means of which Western industrialism and Western capital had borne Western civilization into the remotest parts of the earth’s surface… and creating riches unheard of before. It accompanied the triumphal unprecedented progress of Western liberalism ready to unite all nations into a community of free nations peacefully cooperating with one another...

The gold standard is certainly not a perfect or ideal standard. There is no such thing as perfection in human things. But nobody is in a position to tell us how something more satisfactory could be put in place of the gold standard.”

Before Alan Greenspan5) 6) sold his soul, he described the gold standard as promoting prosperity and freedom.

According to him at the time, only this monetary system could prevent the chronic deficit spending of the welfare state and the recurrent speculative excesses of the financial world that result in depressions. He believed that gold and economic freedom are inseparable, that the gold standard is an instrument of laissez-faire and that each implies and requires the other. A true division of labor economy cannot exist without gold.

The era of the gold standard during the 19th century was the golden age of the white man, as well as Japan. During this period, after Napoleon, there were only seven wars of any consequence.

Post-Napoleonic wars in the 19th century
1855 Crimean War
1861-65 American Civil War
1866 Austro-Prussian War, North German Confederation
1870-71 Franco-German War
1877-78 Russian-Turkish War, Congress of Berlin
1894-95 Sino-Japanese War
1900 Anglo-Boer War in South Africa
And furthermore: There was no terrorism of the scope we know today.

Assertion
I assert that if the gold standard had been maintained and if the warring nations had kept on observing the rules of the gold standard, World War One would not have lasted very long at all. Because of the automated mechanism and the prevailing rules of decent behavior at the time, financing the war on credit in a Keynesian fashion would not have been possible. (Parenthetically, Swiss historian Jacob Burckhardt describes Keynes as one of the great destructive forces in world history, along with Karl Marx.) Soon after the onset of World War One, the moment came when the world turned to monetary fraud. Political pressure to finance the war by issuing bonds made it impossible to pursue a sane monetary policy and drove the currencies to ruin. Without deficit financing, the war would have lasted for 6 months at the most. But without the discipline of a gold-backed currency, it went on for 4 1/2 years. The world lay in ruins, and millions of young people, indeed an entire generation, were lost on the battlefields.

The demise of the gold standard topples the old world order
The catastrophe of World War One also signified the passing of the old world order. Stefan Zweig’s book Die Welt von Gestern7) (The World of Yesterday) describes how comfortable the world was before the war. Financing the war had a particularly ruinous effect on Germany, the country with the most robust and thriving economy at the time. The Reichsbank financed a large part of the war expenditures on a short-term basis, i.e. not with long-term War Loans like the British. This fact, in addition to the Treaty of Versailles and unreasonable reparation payments, led to hyperinflation, to the destruction of the middle class and, finally, to Hitler. It thus set the stage for World War Two. Look at what the shortsighted socialists have made out of the economic miracle with their welfare state: a lamentable Germany.

The monetary tragedy of the 20th century
The return to the gold standard after World War One was a fait accompli. But it lacked wisdom and conviction on the part of those in charge. At the Conference of Genova in 1922, the gold exchange standard was introduced.

Please note that it was not the gold standard that was reestablished, but rather the watered-down gold exchange standard that was launched. This meant that, apart from gold, the central banks could also dollars and pounds (i.e. the currencies of the triumphant nations) as reserves. Suddenly, dollars and pounds were equivalent to gold. That was inflationary because dollars and pounds were now accounted for twice: first in the country where they were issued, and second in the country that held them in reserve.

Furthermore, it should have been obvious that these paper currencies were in no way immune to losses in purchasing power. Therefore, they could not be lasting and generally valid yardsticks. Gold always retains its value – paper currencies do not. One of the most catastrophic decisions in monetary history also occurred when despite the emergence of inflation in the meantime, Winston Churchill, as Britain’s Chancellor of the Exchequer, chose to maintain the gold parity at the same level as it had been in 1914 instead of devaluing the pound. The Fed, facing a mild economic downturn in the USA in 1927, began providing large amounts of liquidity to the banking system. Moreover, it wanted to help out the Bank of England, which was losing a lot of money at the time because fixed income investments in the USA were more attractive. In order to lower the interest rate level, the Fed thus pumped even further liquidity into the system. This money eventually made its way to the equity markets, and the situation got out of hand in 1929. When the authorities decided it was time to stop the boom, it was already too late. The USA’s economy collapsed and dragged the world into the Great Depression of the 1930s. To this very day, the proponents of planned economies blame the gold standard for this debacle. But there was no gold standard anymore. If there had been, it would have worked at the time.

Central banks, banks and wars
When the gold standard was abandoned, central banks were the last barrier to rampant money creation, as long as they were able to maintain their independence. In the meantime, however, we have learned from bitter experience just how ineffective these so-called keepers of stability have been. Central bank independence did not turn out how it was intended to be. Central banks became compliant pawns of the governments. Indeed, it is precisely the central banks and the banking system that, through their creation of credit, have made deficit spending and war expenditures possible, and even promoted them in many instances. In his book Debt and Delusion8), British economist Peter Warburton places most of the blame for the deterioration of economic and financial policy since the early 1980s on the central banks. There are no golden brakes anymore.

The Federal Reserve System
The most ominous and threatening event in central bank history was the establishment of the Federal Reserve System in the USA in 1913. The Bank of England and Germany’s Reichsbank served as a model. If you do not appreciate at the moment why I view the foundation of the Fed as ominous, I advise you to read the book The Creature from Jekyll Island – A Second Look at the Federal Reserve System by G. Edward Griffin9). Under the pretext of protecting the public against bank crashes and maintaining a stable value of money, the US Fed (which is not federal at all, but rather very private) is a cartel that is designed to protect its members against unwelcome competition and, in the event of losses, to pass these on to taxpayers. Its foundation flies in the face of the American Constitution envisioned by the founding fathers. Presidents like Thomas Jefferson and Andrew Jackson were always against the establishment of a central bank. It came into being in a very devious manner, as the Federal Reserve Act was pushed through Congress just prior to Christmas of 1913, when most delegates were already at home with their families. Its foundation violates the American Constitution, which states that only gold and silver should be considered legal tender.

Mr. Griffin recommends abolishing the Federal Reserve System for the following reasons:

The Fed is incapable of achieving the goals it has set for itself, namely maintaining a stable value of money. Since its foundation, the value of the dollar has fallen by more than 95%.
It is a cartel that violates the public interest.
It is an outstanding instrument for promoting exorbitant pricing by the banking system.
It creates highly unfair taxation.
It encourages and abets wars.
It destabilizes the economy.
It is an instrument of Totalitarianism.

The state, or more precisely, the welfare state
Economist Wilhelm Röpke, one of the men behind Germany's economic miracle10), once said: “One can venture the claim that governments very rarely had complete control over their currency without abusing it. In today’s age of the welfare state, the probability of such abuse is greater than ever before.”

Today the gold standard is needed more than ever, for we all know from bitter experience that politicians cannot be trusted. The current political establishment will therefore stubbornly resist any attempt to introduce a gold-backed currency because such a currency would make it impossible to maintain today’s welfare state. The welfare state’s existence is predicated on government deceit of the citizens since it bears the most responsibility for the eroding value of money.

The unfortunate decisions made at Bretton Woods in 1944
The world had not learned anything at all. At the end of World War Two, it was decided to introduce the gold-dollar standard. The USA was thus granted the appalling monopoly to settle its debts with paper money it printed itself, which Charles de Gaulle referred to as the exorbitant privilege. Nobody could have resisted such temptation. A direct result of this was the inflation of the 1970s.

I ask you to consider the fine points: After World War One, we went from the gold standard to the gold exchange standard with dollars and pounds. Then after World War Two, we then proceeded to the gold-dollar standard. The pound had lost its previous stature in the interim and was no longer suitable as a reserve currency. As a sign of the USA’s growing economic power, apart from gold the dollar remained the world’s only valid reserve currency.

When President Nixon unilaterally abandoned this arrangement on 15 August 1971, it was tantamount to the bankruptcy of the USA. The era of floating exchange rates began in 1973. That fully opened the floodgates for money creation, credit expansion, deficit spending and speculation. As far as the ominous foundings of the IMF and the World Bank are concerned, we don’t have time to discuss them in depth today. Suffice it to say that there is no doubt that both institutions encouraged and supported Socialism around the world.

Today’s international order as a consequence
In a speech on 7 August 2002, President George W. Bush said the following: “There is no telling how many wars it will take to secure freedom in the homeland.” With this comment, Mr. Bush announced that there might not only be a war against Iraq, but many wars around the globe. He did not define when a war would be considered won or lost. This means these wars may continue indefinitely. Once again, they will be financed by deficit spending and through the banking system. This would not be possible under a gold standard.

I will now take a closer look at how the USA will be able to pay for these wars. In principle, the USA is bankrupt. The trade balance deficit is approaching 600 billion dollars, the budget deficit exceeds 500 billion dollars, and its foreign debt is enormous.

The USA has indeed already been bankrupt since 15 August 1971. That was the day America escalated its war on gold. Not unlike a banana republic, the USA defaulted on its obligation to redeem dollars for gold. If you are bankrupt, you theoretically should not be able to wage any wars. Under the discipline of the gold standard, it certainly would not be possible. Despite this, however, the USA can wage war and simply pay for it with its unbacked paper money, with fake money so to speak.

Who, then, actually pays for these wars? The answer is simple: We all do! It was the same in the case of Kennedy’s and Johnson’s Vietnam War. The world helps to finance the deficits, and the Americans wage the wars. That is ultimately the disgraceful result of abandoning the gold standard. But nobody notices, or is willing to admit it. That’s how it is: We are all partly to blame.

The 20th century and the onset of the 21st century
Contrary to the 19th century – with its solid and inflation-free growth, notable currency stability and relatively small number of wars – the 20th century was marked by inflation, hyperinflation, currency and trade wars, waves of speculation and military conflicts. The 20th century also brought two world wars, hundreds if not thousands of local wars, hundreds of millions of casualties, wholesale genocide, mass migration, worldwide monetary erosion, economic ruin, gigantic slums, the Aids epidemic and, ultimately, the decline of civilization.

Why are there wars?
Among the various motivations for international disputes that have ultimately led to war, economic reasons have undoubtedly been the most significant – from the primeval struggles for hunting territories, pastures, salt mines and fertile valleys, to the predatory attacks and conquests of the seafaring and trading nations, all the way to modern battles for living space, sales territories and, the most important motivation of all, access to natural resources. However, domestic political problems have also played a large role. Wars have frequently been started to divert attention from problems on the home front.
In the Middle East, both aspects have been important to the Americans, namely:

Control over the oil resources of the Middle East

Distraction from the disastrous condition of the US financial system

Saddam Hussein was only a pretext. Let’s not forget that the USA had previously built him up and supported him as a buffer against Iran.

There is one more reason, however, and that is the unbelievable arrogance of the US government. But now the arrogant leaders in the USA are feeling the backlash. First this is a war that can’t be won, and second it is doing even more damage to the dollar. Wars have always undermined the purchasing power of currencies. Whereas a gold coin from the time of Alexander the Great still shines as it did then, paper currencies are destined to revert eventually to their intrinsic value, and that is nil.

The Germans know a thing or two about that. They suffered a total loss after World War One, another total loss after World War Two, and were ultimately admitted to the European Monetary Union, thus accepting the euro as their currency. And this all happened in less than a century.

Gold is freedom
Not only is there a correlation between gold-backed currencies and war, but also between gold-backed currencies and freedom. In a famous essay entitled Gold and Economic Freedom5) that current US Fed Chairman Alan Greenspan wrote in 1966, he said the gold standard promotes prosperity and freedom. When we recall that one of the first official acts of Lenin, Mussolini and Hitler (and, by the way, Franklin D. Roosevelt) was to forbid the private ownership of gold, this relationship becomes clear. Even now, the price of gold is still manipulated each day and kept artificially low. Those in power want to maintain the fictitious status of the dollar, at least for as long as possible. In my book Gold Wars11), I described this manipulation.

Why is gold being manipulated?
Gold is indeed being manipulated each day by a clique of reckless financial wrongdoers. The following chart shows the gold price movements and manipulation over a one-day period. You can clearly see what is happening here.

Normally, the price of gold rises in Europe, but as soon as the COMEX opens in New York it is driven downward – more on some days, less on others. And this takes place without regard to the harm, and by that I mean the economic damage, that it causes throughout the world.

Why are these financial wrongdoers interested in manipulating gold?
In each and every discussion about the future of gold and its price, one thing needs to be clearly understood:

GOLD IS A POLITICAL METAL.
And this is so for the simple reason that given its historical role as money, gold just isn’t compatible with the modern financial system. Up to 15 August 1971, there was never a period in history during which no currency was linked to gold.

The world’s history of currencies is full of examples of devaluations, coin clipping and bankruptcies. Yet it was always possible to switch to other currencies that were backed by gold. But if you disregard the Swiss franc, this has no longer been possible since 1971.

All of the economic, monetary and financial catastrophes of the past 30 years can be traced back to this event.

Today’s system of unbacked paper money is still very young. It relies solely on faith – faith that the debts upon which it is based will be repaid someday.

A single, one-off event that could shake this faith, and thus the foundation of the financial system, is a robust upsurge in the dollar price of gold.

That is the entire reason why gold is manipulated each day.

But we know from the history of the Gold Pool in the 1960s that gold cannot be manipulated endlessly. At the time, the central banks tried to fix the price of gold at 35 dollars an ounce. The Gold Pool fell apart on 17 March 1968, and the entire pitiful experiment became the object of ridicule.

Gold is very cheap today because the governments of the world tamper with its price on a daily basis.

Where do we stand today? In a world at war and in crisis!
We are in the midst of a global currency and devaluation war.
The world’s reserve currency, the dollar, is weak because of the USA’s alarming financial situation – more than 34 trillion dollars of debt, 200 trillion dollars of derivatives and some 10 trillion dollars of obligations outside of the official government accounting. (And just think, in 1997 there were fears that the global financial structure would collapse due to a single hedge fund, Long Term Capital Management, with total assets of 3 billion dollars.)
The money supply is increasing dramatically in the USA and worldwide.
The stock markets currently resemble casinos; they are overvalued and dangerous. The Dow Jones Index is manipulated each day by the Working Group on Financial Markets (established in 1987 by President Ronald Reagan). There are no free markets anymore.

The insiders are getting out.
We face negative interest rates (i.e. inflation exceeds interest income), which are bad for investment and the economy.
There is a deficit between gold production and demand – central banks have loaned out 1/3 to 1/2 of their gold. The gold is gone. Panic could ensue if people realize that gold is the only safeguard of monetary value and that a large portion of the central banks’ gold has been sold.
The mountainous debt has reached historically high levels worldwide. This will place an onerous interest burden on the young generation and may be impossible to finance. It could result in panic or might be dealt with through inflation.
The current erosion of money is catastrophic for wage earners and retirees. The Middle Class is being squeezed. A billion people around the world live in poverty stricken areas. Soon, one out of every three city dwellers will live in slums. Such conditions will promote the spread of radicalism. Hate is growing.
The global economy will be in a Kondratieff winter over the next 10 years. Humanity has managed to overcome every crisis up to now, but given the current means of monetary degradation, it will not get through this crisis without serious consequences.

Political confusion is on the rise.
The geopolitical situation has never been so bad. A coup in the Kingdom of Saudi Arabia could, by itself, have a disastrous impact on the flow of oil and the global economy.
At this point, allow me to provide a quote from a speech given in Washington D.C. in 1948 by Congressman Howard Buffett, father of the most successful investor of all times, Warren Buffett:

“Because of our economic strength, the paper money disease here may take many years to run its course. But we can be approaching the critical stage. When that day arrives, our political rulers will probably find that foreign war and ruthless regimentation is the cunning alternative to domestic strife. That was the way out for the paper-money economy of Hitler and others... For if human liberty is to survive in America, we must win the battle to restore honest money. There is no more important challenge facing us than this issue – the restoration of your freedom to secure gold in exchange for the fruits of your labors.”

Ladies and Gentlemen, these are the subtle relationships between freedom, money, intellect, war, peace and gold.

Ladies and Gentlemen, I believe I have now provided sufficient reasons for the necessity of a healthy, stable currency based on gold. It is the only solution! We must go back to honest money, back to the gold standard.

Or as Otto von Habsburg once said: “Ethics and morality are still the safest approach to take in all fields

In conclusion, I will therefore allow two other gentlemen with a renowned grasp of world affairs to speak out on the topic of a gold-backed currency. The internationally recognized investment consultant Harry Schultz has given us one of the best definitions of the gold standard: Standards: (gold and other)

I have written several times in the last 36 years and I want to restate this principle with force: I am pro-gold regardless of the price! I don’t fight for gold in order to make a profit on gold shares, bars or coins! Gold is important for far more important reasons and I would be embarrassed to promote gold only for monetary gain. Gold is the essential linchpin for our individual (not group or nation) freedom. Gold belongs to the monetary system as a governing factor. We belong back on the gold standard. I used to compromise and say a quasi-gold standard will probably do, a modified Bretton Woods version. And that may be what will evolve, but in my view we should fight for a pure gold standard, the old-fashioned form, because it worked! And not just for fiscal reasons! It forced nations to limit their debt, spending and socialist schemes, which meant sound behavioral habits were formed around those limitations, and those habits rubbed off on everyone. People were more honest, moral, decent, kind, because the system was honest and moral. Cause and effect. Today we have cause and effect of the opposite standard: no limits on what governments can do, control, dictate; no limit on government debt, welfare or socialist schemes. There is no governor on the government.

This habit rubbed off on the public, causing them to go into debt, lose respect for the system and morality. The effect brings us more divorce, fraud, crime, illegitimate births, broken homes. When the money of any country loses its base/backing there is no standard for any behavior. Money sets a standard that spreads into every area of human activity. No paper money backing, no morality. That is why gold coin money worked so well and why the US moved into paper money very slowly, carefully, keeping the paper dollars backed 100% by gold. But slowly, like slicing a sausage, that backing was removed in stages, ‘til now there is none. The effect of this cause is all around us. Violent films reflect violent society reflect no respect throughout society. Layer by layer, we are corrupted when money loses certainty. Today’s stock market bubble is part of the scene as will be tomorrow’s mega-crash and mega-recession. Big Brother was made possible through the absence of automatic controls and loss of individual freedom via non-convertible currency. So, pass the word. Fight for gold. Not for profits, though they are helpful and help us fight for individual freedom, but for a future that returns to sanity in various standards. If we have a gold standard we get a golden human standard! The two are intertwined. They are the ultimate cause and effect. Gold blesses.”

Charles de Gaulle, President of France, gave his country the greatest gift he could offer: He restored France’s confidence.

On 4 February 1965, he said::

“The time has come to establish the international monetary system on an unquestionable basis that does not bear the stamp of any country in particular. On what basis? Truly, it is hard to imagine that it could be any other standard than gold. Yes, gold whose nature does not alter, which may be formed equally into lingots, bars or coins; which has no nationality and which has, eternally and universally, been regarded as the unalterable currency par excellence.”

I thank you!

Ferdinand Lips

Speech given by Ferdinand Lips
at the University of St. Gallen on 24 June 2004 as part of
the International Finance & Security lecture series

by Paul B. Farrell, MarketWatch

30 'leading edge' indicators of the coming Great Depression 2
Every day there is more breaking news, proof Wall Street's greed is already back to "business as usual" and in denial, grabbing more and more from the new "Bailouts-R-Us" bonanza of free taxpayer cash and credits, like two-year-olds in a toy store at Christmas -- anything to boost earnings, profits and stock prices, and keep those bonuses and salaries flowing, anything to blow a new bubble.

Scan these 30 "leading indicators." Each problem has one or more possible solutions, but lacks unified political support. Time's running out. We're already at the edge. Add up the trillions in debt: Any collective solution will only compound our problems, because the cumulative debt will overwhelm us, make matters worse:

1. America's credit rating may soon be downgraded below AAA
2. Fed refusal to disclose $2 trillion loans, now the new "shadow banking system"
3. Congress has no oversight of $700 billion, and Paulson's Wall Street Trojan Horse
4. King Henry Paulson flip-flops on plan to buy toxic bank assets, confusing markets
5. Goldman, Morgan lost tens of billions, but planning over $13 billion in bonuses this yea
6. AIG bails big banks out of $150 billion in credit swaps, protects shareholders before taxpayers
7. American Express joins Goldman, Morgan as bank holding firms, looking for Fed money
8. Treasury sneaks corporate tax credits into bailout giveaway, shifts costs to states
9. State revenues down, taxes and debt up; hiring, spending, borrowing add even more debt
10. State, municipal, corporate pensions lost hundreds of billions on derivative swaps
11. Hedge funds: 610 in 1990, almost 10,000 now. Returns down 15%, liquidations up
12. Consumer debt way up, now at $2.5 trillion; next area for credit meltdowns
13. Fed also plans to provide billions to $3.6 trillion money-market fund industry
14. Freddie Mac and Fannie Mae are bleeding cash, want to tap taxpayer dollars
15. Washington manipulating data: War not $600 billion but estimates actually $3 trillion
16. Hidden costs of $700 billion bailout are likely $5 trillion; plus $1 trillion Street write-offs
17. Commodities down, resource exporters and currencies dropping, triggering a global meltdown
18. Big three automakers near bankruptcy; unions, workers, retirees will suffer
19. Corporate bond market, both junk and top-rated, slumps more than 25%
20. Retailers bankrupt: Circuit City, Sharper Image, Mervyns; mall sales in free fall
21. Unemployment heading toward 8% plus; more 1930's photos of soup lines
22. Government policy is dictated by 42,000 myopic, highly paid, greedy lobbyists
23. China's sees GDP growth drop, crates $586 billion stimulus; deflation is now global, hitting even Dubai
24. Despite global recession, U.S. trade deficit continues, now at $650 billion
25. The 800-pound gorillas: Social Security, Medicare with $60 trillion in unfunded liabilities
26. Now 46 million uninsured as medical, drug costs explode
27. New-New Deal: U.S. planning billions for infrastructure, adding to unsustainable debt
28. Outgoing leaders handicapping new administration with huge liabilities
29. The "antitaxes" message is a new bubble, a new version of the American dream offering a free lunch, no sacrifices, exposing us to more false promises
No. 30:
At a recent Reuters Global Finance Summit former Goldman Sachs chairman John Whitehead was interviewed. He was also Ronald Reagan's Deputy Secretary of State and a former chairman of the N.Y. Fed. He says America's problems will take years and will burn trillions.

He sees "nothing but large increases in the deficit ... I think it would be worse than the depression. ... Before I go to sleep at night, I wonder if tomorrow is the day Moody's and S&P will announce a downgrade of U.S. government bonds." It'll get worse because "the public is not prepared to increase taxes. Both parties were for reducing taxes, reducing income to government, and both parties favored a number of new programs, all very costly and all done by the government."

Reuters concludes: "Whitehead said he is speaking out on this topic because he is concerned no lawmakers are against these new spending programs and none will stand up and call for higher taxes. 'I just want to get people thinking about this, and to realize this is a road to disaster,' said Whitehead. 'I've always been a positive person and optimistic, but I don't see a solution here.'"

We see the Great Depression 2. Why? Wall Street's self-interested greed. They are their own worst enemy ... and America's too

Bullionmark's comments:
.....and the world too!

As forecast the bullish bias on both gold and silver materialised last week. The levels of $1168AUD for gold and $9.60USD for silver now become important levels of support. Some retest of these levels may be seen early next week but the path of least resistance is up from here.

Gold weekly (in $AUD) click on chart for larger view
Our short term targets forecast last week were achieved. Should gold break above $1300AUD we will see a quick move to $1415. An impulsive move could see $1450AUD a point of very strong resistance. Good support is now in place at $1150AUD.




Silver daily (in USD)click on chart for larger view
Silver tested and held our $8.93 resistance levels this week. The predicted bounce to $9.60USD was achieved with Fridays strong rally. Strong closes on a Fridays are a bullish signal. With the $9.63USD target achieved it should now provide solid support. We expect a run to $10.50USD this week with a breakout target of $13.50USD soon. Big moves may be coming for silver.

Gold. People either love it or hate it. There aren't many who feel ambivalent toward it. Unfortunately, gold is deeply misunderstood by investors, and that misunderstanding is hurting their portfolio returns. Many in the investment community trot out the old myths about gold: that it is a bad investment; that it is very risky; that it is not a good inflation hedge. But is there anything behind these assertions? If investors take the time to examine the facts, these commonly held beliefs simply do not stand up to scrutiny. It is precisely because these myths have become so prevalent that gold is still undervalued. Once the general public realizes these beliefs are not valid, the price of gold will be much higher.

MYTH 1:
GOLD IS A BAD INVESTMENT
A frequently cited argument is that since it peaked at $850 per ounce (all amounts in U.S. dollars unless otherwise noted) in 1980, gold's return has been poor compared to the major stock indices. However, that peak price was a short-lived, single-day aberration. Investors who avoided the mania phase and purchased gold one year earlier in 1979 at its average price of $306 per ounce also avoided any significant losses during the subsequent bear market. The performance of different asset classes varies from cycle to cycle. The previous cycle from 1968 to 1980 saw the Dow Jones Industrial Average remain flat with significant volatility, while gold increased by 2,300 percent. In the current cycle, which began in 2002, gold has posted a compounded return of 14 percent, while 15 of the 30 Dow components are negative.

Many studies compare gold to equities over peri-ods as far back as the 1700s. But these studies ignore the fact that gold's price was fixed until 1971. Prior to that time, gold was money and not an investment. Interestingly, virtually none of the stocks listed in the 1700s still exist today. Instead, the returns of major indices such as the Dow are boosted by the removal of bankrupt companies and poor performers, which are replaced by high performers. Three of the 30 companies that made up the Dow in 2000 have since been replaced.

From a strategic portfolio allocation viewpoint it is easy to see why Ibbotson Associates, one of the world's most highly regarded asset allocation specialists, determined that holding between 7.1 percent and 15.7 percent in precious metals bullion reduces portfolio volatility and improves returns.

MYTH 2:
GOLD IS NOT A GOOD INFLATION HEDGE
The arguments against gold as an inflation hedge are usually based on calculations arising from the intra-day price spike in 1980. While gold did not keep up to inflation using daily prices from 1980 to 2002, the annual average gold price has kept up extremely well since 1971, when the price was no longer fixed, Figure 1. During the same timeframe, the U.S. dollar lost about 80 percent of its purchasing power. In fact, all the world's major currencies have depreciated by significant amounts due to continuous excessive increases in the money supply. The impact of this devaluation on real returns is significant.

Conversely, gold has not only maintained its purchasing power but increased it against all major currencies. It will continue to do so as long as the world's central banks keep increasing the money supply by a greater percentage than their country's GDP growth.



More importantly, gold maintains its purchasing power not only during inflationary periods, but also during deflationary periods. An extensive study, published by Roy Jastram, analyzed the purchasing power of gold in England and the U.S. from 1560 to 1976. Jastram concluded that gold held its value remarkably well over time. The purchasing power of gold and precious metals actually increases during deflationary periods because other assets decline in price by a much greater amount than precious metals do.

As central banks continue to accelerate the pace at which money is printed, inflation will increase, and the purchasing power of paper currencies will decline. This will result in more and more astute investors fleeing to the safety of gold. As a con-sequence, gold's price should rise far in excess of the Consumer Price Index and the true inflation rate. In order to protect portfolios from rising inflation, Wainwright Economics concluded that an all-bond portfolio would need an 18 percent allocation to gold, silver and platinum, while an all-equity portfolio would need 40 percent just to stay ahead of inflation.

MYTH 3:
GOLD IS A RISKY INVESTMENT
Risk means different things to different investors. A pension fund may perceive risk as a failure to meet its liabilities, whereas an asset manager may view risk as a failure to meet its benchmark. Most investors, however, associate risk with a loss of their capital or underperformance of their invest-ments in comparison to their expectations. "Risk comes from not knowing what you are doing," according to Warren Buffett.

There are many kinds of risk: currency risk, default risk, market risk, inflation risk, systemic risk, political risk, interest rate risk and liquidity risk. While all of these apply to financial assets, many do not apply to gold bullion. Physical bullion is not subject to default risk, liquidity risk, political risk, inflation risk or interest rate risk. In the rare circumstance of strong currencies, gold may be subject to short-term currency risk and, at times, to market risk. Unlike financial assets, however, gold bullion cannot decline to zero. Gold is the only asset that can protect wealth from non-diversifiable systemic risk.

Volatility or standard deviation are often used as measures of risk, and gold is considered to be quite volatile. However, when annual compounded returns are plotted against standard deviation, the individual Dow stocks are all more volatile than gold, and all but two of the Dow stocks had poorer performance than gold, silver, and platinum over the past eight years. Figure 2.



Returns are important, but even more important is to compare risk-adjusted returns. Clearly, an investment that has higher volatility may still be attractive if the returns are appropriately higher. Nobel prize-winning economist William Sharpe devised the most commonly used measure of risk-adjusted performance: the Sharpe Ratio. This ratio measures the amount of excess return per unit of volatility. The interpretation of the Sharpe Ratio is straightforward: the higher the ratio the better.

Bullion is unlikely to suffer underperformance risk in the near future. Demand for gold, silver and platinum is increasing for both commodity and monetary attributes, while annual mine production is declining. As the price of oil continues to rise due to production declines and increased demand, inflation will accelerate. As central banks increase money supply at accelerating rates, the purchasing power of currencies will continue to decline. As these two major trends interact with each other, the price of gold will continue to rise.

MYTH 4:
GOLD DOES NOT PAY DIVIDENDS OR INTEREST
The Bank of England used this argument to justify selling half the country's gold holdings at the bottom of the market in 1998. It wanted a "safe" investment, one that would generate interest, and it chose U.S. treasury bills. The gold was sold for under $300 per ounce. In the months following that sale, the price of gold tripled, and the value of the U.S. dollar lost 30 percent against the British pound. The currency exchange losses plus the opportunity cost resulted in billions of pounds in losses, significantly offsetting any interest income the Bank might have received.

The same is true for bond investors. In an infla-tionary environment, the "real" or inflation-ad-justed interest rate they receive is often negative. Gold, like any other asset that sits in a vault, will not earn interest or dividends, but neither is it at risk. No asset class generates income unless you give up possession and take the risk of not getting it back. However, gold's capital appreciation is many times greater than the prevailing interest yields, while not being subject to any of the risks that interest-bearing investments are subject to.

MYTH 5:
GOLD IS AN ARCHAIC RELIC
Gold is often referred to as an archaic relic with no monetary role in today's modern digital society. Several facts contradict this view. The world's central banks still hold 29,000 tonnes of gold in their reserves. Gold, silver and platinum trade on the currency desks - not the commodity desks - of the banks and brokerage houses. The turnover rate of physical gold bullion, between the nine members of the London Bullion Marketing Association, currently averages $24 billion per day. Trading volume is estimated at seven to ten times that amount. Clearly, gold is still trading in its traditional role as an alternative currency.

MYTH 6:
MINING STOCKS ARE BETTER INVESTMENTS THAN BULLION
While mining stocks can generate impressive returns during an uptrend in precious metals prices, they do not always outperform bullion. It is unfair to compare junior mining companies to bullion because of the huge disparity in risk. While successful junior miners can generate impressive returns, over 90 percent of precious metals discoveries never become productive mines. A better comparison would be the larger producers. While mining stocks have outperformed bullion during the early stages of this bull market, gold bullion has outperformed the major mining indexes since March 2007. Figure 3.

Mining stocks tend to be significantly more volatile and risky than bullion, and during sharp market declines they tend to follow the broad equity markets downwards -even if the price of the metal is rising. During the late stages of the bull market of the 1970's, mining stocks underperformed bullion. In order to adequately compensate investors for the higher risk, mining stocks would have to outperform bullion.



CONCLUSION
Investors who take the time to carefully evaluate the benefits of bullion will realize that these com-monly held myths do not hold up to scrutiny. Those investors stand to reap significant rewards. Investors who believe these myths are missing out on the opportunity to add an asset class that diversifies portfolios, protects against inflation, and may provide better returns than traditional assets, such as stocks and bonds.

Under a worst-case scenario of systemic risk, bullion may be the only asset that holds its value. As these myths are dispelled and the price of bullion rises, as many mainstream analysts predict, informed investors will benefit from purchasing bullion at today's undervalued prices.

When the public at large becomes fully educated with respect to precious metals, it will bid up the price. Considering that global financial assets are estimated at over $180 trillion, while total global above-ground gold is only $4 trillion (and above-ground bullion is less than $1.5 trillion), a massive wealth transfer event is likely to occur. It is inter-esting to note that even a 10 percent switch from financial assets to gold would result in a 450 percent to 1,200 percent increase in the gold price.